The Energa Group enjoys a successful Q3. The Distribution Segment invariably continues to drive growth.

The Energa Group improved its financial and operating results in the first three quarters of the year. EBITDA is equal to PLN 1.6 billion and is up 7%. The volume of energy distribution, generation and sales to end users has also risen. In Q3 the Group also obtained EUR 250 million in the form of hybrid bonds to underwrite investments in the Distribution Segment, traditionally the Group’s largest operating segment.

The Energa Group’s net profit was PLN 559 million in the first nine months of this year (compared to PLN 74 million in the corresponding period of 2016). In Q3 alone the Energa Group’s EBITDA was half a billion PLN, up 14% from last year, with net profit of PLN 71 million (compared to PLN 190 million last year). However, it is noteworthy that the Group’s net profit, net of impairment losses (non-recurring non-cash events), in Q3 2017 was up by more than 80% in comparison with Q3 2016. The Distribution Segment invariably continued to be of major significance for the Group’s Q3 2017 results. This segment’s top line was up 7% from last year. By signing hybrid financing agreements with the European Investment Bank, the Energa Group obtained EUR 250 million in Q3 2017 to modernize and expand distribution assets in 2017-2019 (the estimated eligible capital expenditures in this period exceed EUR 800 million). Thanks to these new investments, the security of electricity supply will be enhanced, network losses will be curtailed and the quality of service provided to more than 3 million clients will be improved.

We are especially satisfied because our very robust Q3 results demonstrate that we have effectively utilized all the advantages we attained in the two previous quarters. We have a stable financial standing that enabled us to obtain external financing on very favorable terms”, emphasizes Daniel Obajtek, CEO of Energa SA. „Our driving force, i.e. the Distribution Segment continues to be vibrant, but we also posted robust results in the Generation Segment. The effects of the growing demand for our services, the higher efficiency of our generation assets and the diligent execution of our cost optimization policy are visible in our results. We also shared our profit with our shareholders. The positive recommendations analysts have given to our Company serve to confirm that the Group is in good shape”.

The Distribution Segment generated 82% of the Group’s EBITDA in Q3 2017. This segment’s EBITDA is up roughly 5% from last year at PLN 411 million. The higher distribution margin stemming from the favorable sales split contributed to generating such a good result. The lower level of OPEX (primarily impairment losses for receivables) also exerted a positive influence. Net profit in Q3 2017 was higher than in the same quarter of last year by PLN 14 million. The volume of distributed energy was also up by 182 GWh (by 3%).

The Generation Segment enhanced its EBITDA result by PLN 63 million compared to Q3 2016. The EBITDA of PLN 90 million is the outcome of higher sales revenues on electricity, property rights and regulatory system services. Higher generation of electricity in comparison with Q3 of last year was posted by all major assets: the Ostrołęka power plant (up 12%), the Group’s combined heat and power plants (up 33%), hydro sources (up 30%) and wind sources (up 26%). In addition, higher average prices of electricity sales were posted in the Ostrołęka Power Plant line of business. In Q3 2017 the Generation Segment took impairment losses for existing wind farms totaling PLN 70.6 million, for planned wind farms totaling PLN 4.1 million and goodwill totaling PLN 10.9 million.

Despite the clear diminishment in the margin on the sales of electricity and the low level of income from gas trading, the Sales Segment generated a positive EBITDA of PLN 13 million in Q3 2017. It continues to pursue a proactive client acquisition policy; in the middle of this year, it exceeded the historical level of 3 million energy offtake points. This policy underpinned by growth in clients’ average electricity consumption contributed to the volume of retail sales trending upward by 4% compared to Q3 2016. In September of this year, Energa Obrót decided to treat the long-term agreements to buy green certificates as invalid on account of the procedure under which they were executed (without holding a tender). These agreements included agreements that generated enormous losses in this segment (with their settlement based on the substitution fee instead of market prices). This decision did not exert a significant impact on the segment’s results in 2017 as the vast majority of certificates for this year had been redeemed. A positive impact on results should be anticipated in subsequent years. However, it will hinge on court rulings. The company is implementing a business model in which it acts as an integrator of products and services built around the Group’s power DNA. It is also constantly developing its electronic channels of customer service and sales.

In parallel to the modernization and expansion of distribution infrastructure, the Group is developing its smart power grid project. It is supposed to enhance the efficiency and security of energy supply for clients while enabling them to take advantage of new services. For this purpose, Energa Operator has obtained more than PLN 166 million from the Infrastructure and Environment Operational Program in 2014-2020. This will presently make it possible to enlarge the pool of funds to PLN 240 million for allocation to finance the reconfiguration of the grid to meet Smart Grid standards by installing smart metering and building energy storage systems.

The Energa Group conducted investments during the first three quarters of 2017 totaling nearly PLN 794 million, of which investments worth PLN 674 million were undertaken in the Distribution Segment. This work encompassed grid expansion to connect new clients and generators. Modernization work was also conducted to improve the reliability of electrical energy supply. The Group plans to invest in innovative technologies and network solutions. The Generation Segment’s capital expenditures were mainly for the refurbishment of the Ostrołęka B Power Plant. The Group’s investments are slated to be accelerated greatly in Q4 and they should surpass PLN 452 million in the last quarter of this year.

In Q3, Energa Operator posted SAIDI and SAIFI indices of 171.7 minutes per user and 1.1 interruptions per user, respectively. The upturn in the SAIDI and SAIFI indices in Q3 of this year compared to the corresponding period in 2016 ensued from events beyond the company’s control. The extremely unfavorable weather conditions sustained in August 2017 that had not been seen before to such an extent, including hurricane-force winds, led to massive outages and destruction on many sections of the national power grid. 178.5 thousand clients and 8 thousand transformer stations (MV/LV) did not have access to electrical energy in Energa’s operating area following this cataclysm in August, where approximately one thousand stations were in need of repair or partial reconstruction. At a critical moment in time, some 200 sections of transmission lines, including 61 MV lines were destroyed, frequently in need of total reconstruction. 150 crews took part in repairing the damages and restoring energy supply at a crucial moment in time. Energa Operator’s distribution grid was insured; that is why these property losses will not affect the Group’s results.

Presentation - financial results Q3 2017

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